Nikkei gains on China relief; caution prevails as earnings in full swing

Reuters Staff

4 Min Read

* China official PMI report triggers short-covering
* Market cautious as earnings in full swing, U.S. jobs data
awaited - analyst
By Ayai Tomisawa
TOKYO, Aug 1 (Reuters) - Japan's Nikkei share average rose
in choppy trade on Thursday morning as investors zoomed in on a
better-than-expected Chinese manufacturing report, while a
handful of positive earnings also helped support the market.
China's official purchasing managers' index (PMI) rose to
50.3 in July from June's 50.1, and was stronger than market
expectations in a Reuters poll of 49.9, easing some concerns of
a sharp slowdown in Asia's biggest economy.
With markets bracing for a downside surprise, the increase
in the PMI came as a relief to investors even as the private
HSBC PMI, which was released after the official figure, showed
activity shrank for a third straight month in July to its lowest
level in nearly a year as new orders fell.
China is Japan's second-biggest export market.
"Most of us had expected that the data would be bad, so the
better-than-expected official figure forced pessimistic
investors to cover their short positions," said Takatoshi
Itoshima, chief portfolio manager at Commons Asset Management.
The Nikkei gained 1.2 percent to 13,827.43 at the midday
break after briefly trading in negative territory earlier.
The better-than-expected China's official PMI report
increased investors' appetite in companies reporting strong
earnings, analysts added.
Panasonic Corp soared 5.1 percent after it said its
operating profit jumped by two-thirds for the April-June
quarter.
Mizuho Financial Group Inc rose 2.0 percent after
reporting a 35 percent rise in net profit.
Still, the rally may be short-lived as investors remain
focused on a further batch of corporate earnings and macro
events such as Friday's U.S. jobs data, analysts said.
"Now is not the time to be taking a risk proactively," said
Hiromichi Tamura, chief strategist at Nomura Securities.
Despite the positive earnings, investors were also having to
contend with some disappointments.
Shares in Toshiba Corp dropped 5.7 percent and was
the fifth most traded stock by turnover after its quarterly
profit was hit by losses in its consumer electronics business
and fell short of forecasts.
Asahi Glass tumbled 8.4 percent after the company
cut its outlook for the year through December as well as its
dividend payout outlook.
Companies including Sony Corp, Sharp Corp
and Suzuki Motor Corp are also set to report
first-quarter results later on Thursday.
In the short-term, support for the Nikkei is seen at 13,630,
a 50 percent retracement of its rise from a low in June 13 to a
high on July 18, the lowest and highest closing levels since May
23, respectively.
Markets are also watching out for the direction of U.S.
monetary policy after the Federal Reserve on Wednesday refrained
from providing any indication that its stimulus might be scaled
back soon.
"The Nikkei's correction phase (after hitting peak on May
23) is still continuing as gains are capped by both domestic and
overseas factors," said Yutaka Yoshino, chief technical analyst
at SMBC Nikko Securities. "But within another two-to-three month
time frame, the Nikkei will likely show a steady rise as there
will be some more clarity on the Fed's tapering plan and Japan's
full-year earnings."
The Topix gained 1.5 percent to 1,149.05.
The Fed's commitment to easy money should support global
riskier assets although traders are likely to continue
speculating about the timing of the stimulus reduction which has
roiled markets in recent months.
The benchmark Nikkei has fallen about 14 percent since that
mulityear high on May 23, but is still up 31 percent this year.